Optimizing Asset Value: A Study of Launch Strategies in the EU
SummaryA strong commercialization strategy is vital to a successful launch and uptake in any geography, but especially in the EU market, where pricing and reimbursement decisions are decentralized, complex, and dynamic. A commercialization strategy for the EU needs to account for the unique pricing and reimbursement approaches for the individual country markets. The strategy used in our case is referred to as international reference pricing (IRP) which is the practice of informing price negotiations in a given country by calculating a benchmark, or reference, price based on publicly available pricing data from one or more other countries.
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Launching a new molecular entity (NME) has always been an uncertain endeavor for the pharmaceutical industry. To do so, one must successfully address seemingly infinite technical, regulatory, and commercial hurdles. These hurdles become more even more pronounced when considering the nuances of launching in different markets across the globe.
A strong commercialization strategy is vital to a successful launch and uptake in any geography, but especially in the EU market, where pricing and reimbursement decisions are decentralized, complex, and dynamic. A commercialization strategy for the EU needs to account for the unique pricing and reimbursement approaches for the individual country markets. The strategy used in our case is referred to as international reference pricing (IRP) which is the practice of informing price negotiations in a given country by calculating a benchmark, or reference, price based on publicly available pricing data from one or more other countries.
Captario SUM®, a dynamic modeling, simulation, and analytics tool for the life sciences industry, can help make sense of this uncertainty of pricing and reimbursement when launching in the EU. As part of this case study, we will walk through how we supported a customer in developing an EU launch strategy that captured the uncertainty of country launch sequences and the impact of pricing and reimbursement decisions.
Our customer was looking to launch an NME in the EU5. Given general trends in the broader industry, our customer was confident in launching first in Germany and the UK; however, there was significant uncertainty as to the launch sequence across the remainder of the EU5. Our customer was concerned with understanding how different launch sequences can impact on country-specific pricing opportunities (assuming reference pricing) and ultimately on overall asset value across the EU (measured as risk-adjusted net present value; eNPV).
More specifically, our customer was interested in exploring the uncertainty associated with these key variables and their downstream impact on asset sales and eNPV:
Launch timing and sequencing across the EU5
Impact of reimbursement negotiations on price in Germany and the UK
Role of reference pricing in France, Italy and Spain
Addressing our customer’s EU launch sequencing question, Captario first constructed and populated a comprehensive and dynamic model in Captario SUM® that mirrored the nuanced regulatory and commercialization pathways for this potential NME across each EU5 country. Figure 1 shows part of this model in a graphical process language (BPMN) in which it is possible to capture both sequential, parallel, and optional pathways. For example, following EMA approval we allow for an initial free market listing in Germany and the UK (followed by a structured pricing negotiation), while in France, Italy, and Spain sales are only generated following the completion of reimbursement negotiations.
Figure 1: Business process model representation (BPMN)
Given the uncertainty of launch timing and sequencing, we worked with our customer to incorporate ranges of assumptions tied to these reimbursement negotiations and market activities, most importantly:
For each EU5 country, the duration of reimbursement negotiations based on the historical average time from EMA approval to formal launch; these inputs will drive the launch timing in each country as well as the launch sequencing
Given initial free market listings in Germany and the UK after EMA approval, prices in these markets can decrease depending on negotiation results
Launches in France, Italy and Spain generally occur after those in Germany and the UK and, as a consequence, these later-launch countries employ reference pricing practice
Figure 2: Launch timing by country. Conditional on successful negotiations processes in all the countries. Decimal dates are used to represent launches at any given time during a year. A launch on the 1st of July 2028 will then be represented in decimal format by 2028.5. The dates were set according to literature(1) for rare disease drugs.
In our model, the drug is commercialized in Germany immediately following the EMA approval with a fixed price set at 1000 euros. It takes between 6 and 15 months of assessment and discussions (see reference(1)) for the drug to be reviewed by the Federal Joint Committee in Germany, the G-BA (Gemeinsamer Bundesausschuss), and for a new price to be set.
In Figure 3, we created a range of price outcomes post G-BA review.
Figure 3: Price (EUR) post negotiations in Germany. The success of the reimbursement process is directly linked to the outcome of the negotiations, which are considered a failure (0) if the price is below 30% of the free Pricing in Germany. The maximum price expected post negotiations is 70% of the free Price set on the first year of commercialization of the NME.
The variations of the price in the German market over time are summarized in Figure 4.
Figure 4: Mean Price (EUR) as a function of time in Germany. Illustration of the changes in prices in Germany pre and post-negotiations for successful (1) and failed (0) reimbursement processes. In 2028, at launch the price is set to 1000 euros. 2029 is a transition year since negotiations could or could not have ended in that year. In some outcomes, the negotiations are still ongoing for 2029, while in others, negotiations have ended in 2028 and the price in 2029 is already the negotiated price.
The outcome of these price negotiations will have an impact on the continuation of the commercialization of the drug on the German market. The impact on sales can be seen in Figure 5 with a noticeable drop to 0 of the sales in the case where the reimbursement negotiations in Germany lead to a price below the threshold set by our customer.
Figure 5: Sales (MEUR) in Germany Split of the sales depending on the outcomes of the reimbursement process. A failure (0) in the reimbursement process means a withdrawal of the NME from the Germany market which can be noticed in the absence of sales for a failed reimbursement (in blue) after 2029. A loss of exclusivity impact can be noticed after 2033.
Following launch in Germany and the UK, our models account for reference pricing practices in Spain, Italy and France, where price is dependent on the launch sequencing. To determine this measure, we have defined and introduced a variable called Launch Sequence (LS) that would vary between 3 and 5 for France, Italy and Spain as Germany and UK launch directly after receiving the EMA approval (in position 1 and 2).
Figure 6: Probabilities of Launch Sequencing (LS) by Country The figure shows the probability for each country to be entering in the market in a certain position given the conditions set for the reimbursement windows. An LS of 0 means failed reimbursement negotiations and a non-entry in the market. There are no dependencies implemented between the failures across countries in this model. Notice that France, especially seems to have a highly preferred position that is determined by the length of its negotiations processes.
International Reference Pricing Implementation (IRP)
Our customer also wanted to better understand how the reference pricing strategy will affect the prices across EU throughout their product’s time on market. To do so, we associated a reference price depending on each country’s launch sequence. Following launch in Germany and the UK, we apply international reference pricing (IRP) in the following terms:
The country entering in 3rd position in the market will have a price that is equal to the average of the price seen in Germany and UK in the previous year. We assume that the list of prices from the year before is accessible in these countries.
The 4th country to enter into the market will have a price equal to the average of the previous year prices of UK and Germany and the 3rd country entering in the market.
The price set in the 5th country entering on the market will be the average of the prices from the year before of all the countries entering before them.
Figure 7: Reference pricing by LS Conditional on successful negotiations processes in all the countries. Reference pricing allows for uniform prices across regions in Europe over time. In 2028, if a country launches while UK and Germany are launching, the prices are a random number between 500 and 1500 EUR. The price in each country is determined by the prices from last year in the countries that have entered in the market before. The likelihood of the 3rd position country to enter in the market in 2028 is high whereas the 4th and 5th country tend to enter more in 2029.
Figure 8: Reference pricing by LS Shows all outcomes, including those where at least one country does not launch. Here, the likelihood of an entry is inversely proportional to the Launch Sequencing. This relates to the fact that we have more chance of having ANY country entering in 3rd position than ALL the countries having successful negotiations processes (LS can only be equal to 5 if all negotiations are successful).
Figure 9: Prices (EUR) by country Conditional on successful negotiations processes in all the countries. Free pricing is applied to UK and Germany with a fixed price set in 2028 while it becomes a range of prices post negotiations starting from 2029. IRP is applied to Spain, France, and Italy. France is very likely to enter in third position which explains why its distribution is very similar to what is displayed in Figure 7. The minimum and maximum values in 2029 in France are directly linked to France not ending in a third position and France taking the average of the prices set by other countries who entered in the market before with a random price between 500 and 1500 EUR.
One of the main observations that we can make about applying IRP is that prices tend to become uniform across EU over time, even though the launch prices might be very different from one another.
Figure 10: Project NPV distribution partitioned on the value of the LS for each country The heights of the distributions are linked to the probabilities of LS by country seen in fig6. The spread and width of the distributions is linked to the variations in prices depending on the LS. Conditional on EMA approval.
Based on these pricing outcomes, we also examined the impact of LS on asset eNPV in Figure 10. eNPV probabilities are directly correlated to the launch windows.
For our customer to maximize eNPV, launching in France in third position is necessary. As outlined in Figure 6, France has the highest probability of launching as 3rd country while the other likely alternative is mainly failure. The box and whiskers plot in Figure 11 shows that aggregate asset eNPV can decrease by approximately 25% when either Italy or Spain launches in 3rd position.
Figure 11: Risk adjusted NPV France entering in third position versus other countries entering in third position. This confirms that the model presented here is extremely sensitive to the launch windows. Overlapping windows like for Spain and Italy lead to very similar results. Conditional on EMA approval.
The diversity of the reimbursement processes across Europe leaves space for a rich and complex analysis of the different price mechanisms across countries. In the results presented today, we had an outcome in which the launch window for France was completely disjoint from the launch windows in the other countries and this resulted in a very clear distinction in launch sequence between France, Italy, and Spain, and a drastic impact on the eNPV. This latter finding could also be explained by the fact that our model overlooks the uptake of the sales in the first years after launch and therefore gives an exaggerated importance to the first years post-launch in the eNPV calculation.
Nonetheless, this simple model allowed us to get an understanding of how IRP could be applied across EU. We have seen the impact from an NPV perspective of the launch sequencing linked to the different lengths in reimbursement negotiations when international reference pricing is applied. We saw that prices tend to become uniform over time when IRP is applied so only the first years post-launch could make a signifiable difference in terms of sales. It also allowed us to see the importance of being able to give a good estimation of the launch windows as this is a very crucial factor in the launch sequence possibilities. Other possible pricing strategies could be studied either independently or on top of the reference pricing approach such as having a penalty on the price based on a threshold volume or capping the price based on the generic reference pricing listings. Additionally, this work could also be extended to analyze more complex market access scenarios in which the price drives both the market access and the gross to net coefficient. A dependency between the price at the entry in the German and British market and the market access preparations ahead of the EMA approval could also be established to see a link between price at entry in Germany and impact on other countries when IRP is established. This model could also serve as a basis for evaluating resource investment in market access preparations ahead of launch and directly linking the effort to the price post negotiation in Germany and UK for example and to the eNPV across EU.
This is obviously a non exhaustive list of interesting inter-dependencies that could be studied in other follow-up articles.
1. Detiček, A., Locatelli, I. and Kos, M. (2018). Patient Access to Medicines for Rare Diseases in European Countries. Value in Health. Volume 21. Issue 5. Pages 553-560.